Shares in the big four local banks fell 4-5.2 per cent on Tuesday as part of a global panic about banks and their exposure to losses related to the commodity price slump, China's slowdown and the resulting big global market sell-off.

Mal Maiden: CBA releases interim profits

CBA bounced on Wednesday but was still 13.25 per cent down for the year compared with 10 per cent for the market at large. ANZ, NAB and Westpac slipped again, to be down 19.7 per cent, 16.3 per cent and 15 per cent for the year respectively.

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The bank's December-half cash profit rose 4 per cent to a new record of $4.8 billion, and it kept its interim dividend unchanged, at $1.98 a share.

The dividend soaks up 70.8 per cent of the profit, which is at the bottom of CBA's 70-80 payout range. Annualised, it represents a return of 5.4 per cent on CBA's current share price, before franking credits are booked.

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Cash earnings at CBA's retail bank were 8 per cent higher than a year earlier at $2.2 billion after CBA edged lending rates up, and the retail expense-to-income ratio fell 1.8 percentage points to 32.8 per cent.

Business and private banking profits rose 5 per cent to $803 million, wealth management earnings rose 7 per cent to $372 million, and CBA's New Zealand franchise lifted its profit 5 per cent to $463 million.

Two divisions were clearly touched by the commodity price slump and the market ructions that are accompanying it. In Western Australia, CBA's Bankwest subsidiary saw no explosion of bad debts, but posted flat earnings of $396 million as the resources boom unwound; and CBA's institutional banking and capital markets division lifted net interest income 9 per cent despite a tightening of its lending margins, but posted a 6 per cent lower $608 million profit after marking down the value of derivatives and booking higher loan-impairment charges.

Overall, however, CBA's loan losses remained low, and well below average. They continued to "bump along the bottom", in the words of chief financial officer David Craig.

The group's return on equity fell 1.4 percentage points to 17.2 per cent after its $5.1 billion share issue last year, but that is still a very strong return by global standards. The share issue meanwhile pushed CBA's capital backing up to third place on the global banking league table, according to chief executive Ian Narev.

Narev says the bank is watching the market gyrations closely, but appears comfortable. Low interest rates are supporting demand in the construction, healthcare and business services industries, he says, and a lower Australian dollar has begun stimulating activity in internationally focused parts of the economy, including tourism, education and what Narev describes as "niche" manufacturing.

CBA's result underlines that while the Australian banks are sometimes criticised for being glorified building societies, their focus on retail customers and home lending (where CBA and Westpac have the biggest market share) is a strength when the markets are in disarray.

Narev says there are no signs yet that the market sell-down is creating "endemic deterioration" of CBA's loan book. The group has stress-tested its loan book for even lower commodity prices, and is still relaxed.

Its loans to the mining, oil and gas sectors account for only 1.8 per cent of the total loan book any way. Narev says 1.9 per cent of them are classified as impaired – but that's only $350 million, not much more than a rounding error for a group of CBA's size.

The sharemarket ructions are also not cramping CBA's ability to raise medium-term funds in the capital markets, Narev says. In January, as the markets plunged, CBA raised $4.5 billion of five-year money in two tranches, at what he says were "very attractive rates".

CBA's result suggests fears about local bank profits and the dividends they pay are overdone, and its share rose 1.8 per cent on Wednesday. Westpac and the two Melbourne-based banks that focus more heavily on companies, ANZ and NAB, fell again, however, 0.6 per cent, 1.6 per cent and 1.9 per cent respectively. They don't rule their half-years off until March, and in investors' eyes appear to be guilty until proved innocent.